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Friday, May 16, 2014

Is increasing inequality inevitable consequence of economic progress?

In the book, Capital in the twenty first century Thomas Piketty makes a very good case for a growing social inequality being the result of normal economic processes. His detailed examination of extensive historical records show that Economies appear to be cyclic. His analysis of historical data shows that the rate of return on capital gravitates toward the top and the thus ensuing financial inequality leads to the chaotic disintegration of the cycle, which inadvertently lays the ground for the beginning of a new cycle. I arrive at the same conclusions in my book, The science of consciousness.

Energetic changes during an economic cycle The first phase, marked A is a dynamic and vigorous. In the second phase (B) competition within each sector of the economy leads to differences company size, output. The number of companies balloons, making competition fierce. The third, final phase (C) is characterized by increasing inequality and financial crises, bankruptcies. Entropy is lowest during the middle of the economic cycle.

Like Piketty, my book has thought provoking predictions about the evolution of society. The dynamics of the economic cycle is determined by the competition for markets and resources, giving rise to different capital distribution at different stages of the cycle. The start an economic cycle is always characterized by fast innovations, which produce new industries, and new companies. Human enthusiasm combined with abundant resources of raw materials and energy sources triggers fast progress, vibrant economic activity and quick return on investment. Unemployment is low. During this initial, fast changing phase the inequality in society is actually decreasing, and financial opportunities increase across the board. In the second phase, market driven interaction among companies and consumers leads to a divergence, characterized by emerging disparity in productivity and the size of the companies. The financial inequality balloons during the third phase of the cycle. The least flexible and self-confined companies begin to fail, and disintegrate, leading to rising unemployment. Prosperity converges toward the top of the economic ladder. As the exhausted economy expands its financial limitations, failing companies and industries, problems in the monetary system produce large scale failures, and bankruptcies. The disparities become self-perpetuating as the system inevitably moves toward a singularity, characterized by chaos, depression, insurgence and even wars.

In conclusion: In economies labor, resources and goods form parts of an energy cycle, which must remain neutral during the lifetime of the cycle (satisfies zero sum game). In other words, resources cannot be borrowed from the future or carried over from the past. Economic development (just like evolution) occurs by a step-wise progression, separated by economic depressions, revolutions, wars, other chaotic upheavals. These findings raise troublesome questions about current increasing inequality. You can learn more, whether we are close to the end of an economic cycle and what can we do about it in my book. You can find it onAmazon